Apple Inc. v. Samsung Electronics Co. Ltd. et al Doc. 1022 Att. 14 Bressler Decl. In Support of Apple’s Opp. to Samsung’s Mot. For Summary Judgment Ex. 12 Dockets.Justia.com RBC Dominion Securities Inc. Wireless Industry Mike Abramsky (Analyst) (416) 842-7840 Sizing the Global Smartphone Market [email protected] We believe the global Smartphone market will exhibit growth outperformance (37% CAGR Paul Treiber, CFA (Associate) versus 7% CAGR for the mobile phone market), driven by four key factors: 1) disruptive (416) 842-7811 innovations in mobile software and hardware; 2) rising consumer/business demand for mobile [email protected] data (messaging, browsing, applications); 3) faster wireless networks; and 4) mass market Smartphone and data pricing. In this report, RBC sizes the global Smartphone market, and recommends investors with long-term (12-18 month) time horizons overweight Apple (AAPL), Research in Motion (RIMM), and Microsoft (MSFT). More speculative names we would recommend include Google (GOOG) and Palm (PALM). November 12, 2008 • Smartphone Market Expansion. RBC sees the global adoption of Smartphones rising This report is priced as of market over the next four years, expanding 37% CAGR, versus 7% CAGR for the mobile phone close November 10, 2008 EST. market (3% mass market phones). When defined as “data-centric” Smartphones (sold with data plans), RBC sees Smartphone Market expanding from over 80 million units sold in All values in U.S. dollars unless calendar year 2007 or 7% Total Addressable Handset Market (TAM) , to 294 million units otherwise noted. in calendar year 2011 or 20% TAM. RBC estimates there will be 449 million Smartphone For Required Disclosures, users globally by calendar year 2011, up from estimates of 102 million by the end of please see page 53. calendar year 2007. • Historic Confluence. Our outlook is based upon a historic confluence of factors: 1) iconic Smartphones like Apple’s iPhone, Blackberry’s Storm, Google’s Android, etc.; 2) global transition from voice-only handsets to Smartphones, driven by demand for mobile email, browsing and mobile content/applications; 3) advancements in handset technologies offering compelling user experiences; 4) faster 3G networks and carrier focus on data; 5) lower handset/data pricing reaching mass-market inflection points; 6) momentum of mobile application platforms and third party mobile applications; and 7) mobilization of business. • Recession Resistant. Amidst the global economic slowdown, RBC views the Smartphone market – while not recession-proof – as a “market within a market”, outperforming the general handset market, because: 1) mobile data services like email are 'sticky' (less discretionary); 2) the market is international, with developing economies offsetting slower regions; 3) lower data and handset pricing trends improve affordability; and 4) new product cycles. Although we expect growth to slow to 21% year-over-year in calendar year 2009 (from 52% year-over-year calendar year 2008), we expect Smartphone shipments to grow 37% CAGR by calendar year 2011. Our Scenario Analysis shows 30% upside to our Smartphone Growth Forecast under 2%+ calendar year 2009 GDP and, 30% downside under -2% calendar year 2009 GDP. • Vendor Share Shifts. While facing interim growth/margin threats from economic slowdown, this outlook offers long term positive implications for RIM, Apple, Google Android and Windows Mobile Smartphones. RBC forecasts Apple and RIM continuing to gain share from incumbent vendors Motorola, Nokia (including Symbian), LG, and Samsung. With estimates at 1% of TAM (14% Smartphones), RIM need only achieve 1.9% of TAM in calendar year 2008 and 2.8% of TAM in calendar year 2009 to exceed RBC growth expectations in the next two years. Similarly, with 0.3% of TAM (4.4% share data- centric Smartphones), Apple need only achieve 1.2% of TAM in calendar year 2008 and 1.7% of TAM in calendar year 2009 to exceed RBC iPhone growth expectations in the next two years. HTC-branded (estimate 0.3% of TAM), Google Android and Windows Mobile Smartphones are also expected to gain share, although the extent to which depends on building competitive advantages, and successful uptake of pending product cycles. (RBC forecasts 1.1% of TAM for Google, 2.9% for Microsoft by calendar year 2011). CONTAINS APPLE CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER APL-ITC796-0000458644 Wireless Industry November 12, 2008 Table of Contents Executive Summary........................................................................................................................3 Sizing the Global Smartphone Market..............................................................................................3 Smartphones on the Rise................................................................................................................4 Historic Confluence ..........................................................................................................................5 Sizing the Smartphone Market....................................................................................................10 Consumer/Prosumer Versus Business Segments ............................................................................13 International Smartphone Market ...................................................................................................14 Media-Centric Versus Productivity-Centric Smartphone Users..............................................19 Smartphone Market Scenario Analysis ......................................................................................22 Smartphone Vendor Share Outlook............................................................................................25 Vendor Share Outlook ....................................................................................................................27 Business Smartphone Share Outlook..............................................................................................36 Smartphone Market Forecast: Implications...............................................................................37 Mobile Content and Applications................................................................................................38 Wireless-Enabled Laptop Forecast .............................................................................................39 Summary and Conclusions...........................................................................................................41 RBC Capital Markets Interactive Smartphone Forecast Spreadsheet ....................................43 Glossary .........................................................................................................................................45 Price Target Justifications ...........................................................................................................51 Price Target Impediments............................................................................................................51 Company Descriptions..................................................................................................................52 Required Disclosures ....................................................................................................................53 Additional Disclosures....................................................................................................................60 2 Mike Abramsky CONTAINS APPLE CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER APL-ITC796-0000458645 November 12, 2008 Wireless Industry Executive Summary Sizing the Global Smartphone Market We believe the global Smartphone market is entering a period of growth outperformance (37% CAGR versus 7% CAGR for the mobile phone market), driven by four key factors: 1) disruptive innovations in mobile software and hardware; 2) rising consumer/business demand for mobile data (messaging, browsing, applications); 3) faster wireless networks; 4) mass market Smartphone and data pricing. In this report, RBC sizes the global Smartphone market, and recommends investors with long-term (12-18 month) time horizons overweight Apple (AAPL), Research in Motion (RIMM), Microsoft (MSFT). More speculative names we would recommend include Google (GOOG) and Palm (PALM). • Smartphone Market Expansion. RBC sees the global adoption of Smartphones accelerating over the next four years, expanding 37% CAGR versus 7% CAGR for the mobile phone market (3% mass market phones). When defined as “data-centric” Smartphones (sold with data plans), RBC estimates over 80 million “data-centric” Smartphones were sold in calendar year 2007 (7% of Total Addressable Handset Market or TAM), rising to 294 million units by calendar year 2011 (20% TAM). We estimate there are 83 million “data centric” consumer/prosumer Smartphone users (81% of market) world-wide in calendar year 2007, rising to 375 million by calendar year 2011, at 46% CAGR, with 19 million business users, rising to 74 million by calendar year 2011, at 40% CAGR. We have also sized the outlook for wireless laptops which increasingly are expected to become a facet as well of mobile computing, which we expect to rise from 11 million in calendar year 2007 or 8% TAM to 50 million in calendar year 2011 or 17% TAM, four times market expansion (45% CAGR). • Historic Confluence. Our outlook is based upon a historic confluence of factors: 1) iconic Smartphones like Apple’s iPhone, Blackberry’s Storm, Google’s Android phones, etc;